By Tom Westbrook
The global currency markets are a fascinating arena of constant movement, dear reader. Of late, there’s been quite a stir on the streets of Singapore and beyond, largely due to dynamic shifts involving the euro and the yen. The euro, for instance, has recently achieved its most notable ascent in four months, spurred on by some rather forthright comments from a central bank policymaker. Meanwhile, the Japanese yen has been gathering momentum, poised for its best week in a quarter of a year, largely on speculation that Japan might just raise interest rates come December.
As you’d expect, these developments have momentarily put a damper on the dollar’s revival. Furthermore, the U.S. Thanksgiving holiday ensures thinner trading volumes, which likely exacerbates this stalling effect.
Isabel Schnabel, a distinguished board member of the European Central Bank, recently shared her thoughts with Bloomberg. She mentioned that any rate cuts should be gradual, seeking a neutral rather than an accommodative stance. Unsurprisingly, investors recalibrated their expectations, pushing the euro up by 0.7% to land at $1.0560. However, the euro may face staunch resistance around the $1.06 mark, especially if German inflation figures, due later, emerge stronger than anticipated.
Now, turning our attention to the sterling, it also received a boost owing to the weakened dollar, rising to $1.2675. Similarly, the New Zealand dollar climbed over 1% after Wellington chose a milder rate cut, disappointing some who expected a heftier slash of 75 basis points. Presently, the kiwi rests at $0.5892, whereas the Aussie/kiwi cross diminished by 0.7% to A$1.1020. Furthermore, given softer inflation data, the Australian dollar’s gains were somewhat muted, increasing a mere 0.4% overnight.
An event to watch, possibly over a spot of tea, would be the forthcoming speech from Michele Bullock, the governor of the Reserve Bank of Australia, scheduled for 0855 GMT. This address is anticipated to provide insights regarding the bank’s stance on inflation data. “We think that if policy is discussed, a similar ‘cautious’ message is likely to be repeated with the RBA on a different path to many of its counterparts,” remarked Corpay strategist Peter Dragicevich.
On the Japanese front, the yen experienced a sharp rally, mastering the 200-day moving average to settle at 151.50 yen against the dollar. It did lose a smidge of its strength during Asia’s morning trades, hovering near 160 yen per euro. Crucially, rates pricing now suggests a 60% likelihood of a 25-basis point hike in Japan next month. Just a week prior, this probability was a mere 50%. This hike expectation is supported by the majority of analysts surveyed by Reuters.
“Stronger than expected Japanese inflation readings and the risk that the Fed may cut rates again in December have added to the downside pressure on dollar/yen,” observed Rabobank’s seasoned currency strategist, Jane Foley, in a client note. Indeed, alongside a decrease in corporate dollar buying after month-end urgencies were met, the dollar depreciated significantly. The U.S. dollar index accordingly slipped nearly 0.8% overnight, resting at 106.13.
Moreover, recent U.S. data showed personal consumption expenditure aligning with expectations at a 0.2% monthly rise. This nudged U.S. yields downward, further weighing on the dollar.
Emerging markets also have tales to tell. In Brazil, for instance, the real nosedived to a historic low while ten-year yields surged by an imposing 38.5 basis points. This reflects concerns tied to tax cuts potentially stretching their budget.
Report compiled by Tom Westbrook; Editorial adjustments by Sonali Paul
